China’s Stocks Advance for Biggest Two-Day Gain Since November

March 24 (Bloomberg) -- China’s stocks rose, sending the
benchmark index to its biggest two-day gain since November, amid
speculation the government will take further steps to bolster
the economy after a manufacturing index unexpectedly fell.

Bank of Beijing Co. and Haitong Securities Co. jumped at
least 1.9 percent to lead an advance for financial shares after
regulators announced plans to allow companies to sell preferred
shares. Poly Real Estate Group Co. rallied 3.5 percent for a
two-day gain of 11 percent. Hebei Iron & Steel Co. and Tianjin
Reality Development Group Co. soared 10 percent after the China
Securities Journal reported the government plans trade zones for
Beijing, Tianjin and Hebei province.

The Shanghai Composite Index advanced 0.9 percent to
2,066.28 at the close. Barclays Plc said the Chinese government
may announce investment projects and reforms of state-owned
companies as the slowdown in manufacturing threatens Premier Li
Keqiang’s 7.5 percent economic growth target for this year.

“We look for the start of more central government-led
projects, as well as more investment areas and the service
sector being opened up to private capital,” Jian Chang,
Barclays’ China economist, wrote in a report after the
manufacturing data was released today. “The government needs to
take quick action.”

HSBC Holdings Plc and Markit Economics today released a
preliminary reading of its manufacturing index showing a drop to
48.1 in March. The report, known as the flash PMI, compared with
the 48.7 median estimate of analysts surveyed by Bloomberg and
February’s final 48.5 figure. Numbers below 50 signal
contraction.

The Shanghai Composite jumped 2.7 percent on March 21 amid
speculation the government is loosening funding restrictions for
developers and banks to support economic growth. The China
Securities Regulatory Commission said after exchanges closed
that companies can issue preferred shares.

“The market has interpreted the preferred-stock plan as
good news as it can expand financing channels for particularly
big companies,” said Wu Kan, a money manager at Dragon Life
Insurance Co., which oversees about $3.3 billion. “A thematic
play on regional free-trade zones is quite active as well and is
helping to boost market sentiment.”

Companies can issue preferred shares if they are included
in the Shanghai Stock Exchange 50 A-Share Index, the CSRC said
in a statement on its microblog account. Publicly traded
companies can also issue the stock to pay for acquisitions and
buy back shares, the regulator said.

The CSRC also said it will “appropriately” lower
financial requirements on companies that aim for ChiNext
listings to support innovative and growing firms.

China International Capital Corp. advised purchasing shares
of “old economy” industries which have “extremely low”
valuations over “new economy” industries that have high
valuations and are heavily held by institutional investors,
analysts Hanfeng Wang, Qiusuo Li and Yutong Hou wrote in a note.

CICC favors Chinese real estate, insurance, building
material and steel companies as well as banks after the
preferred-share plan was announced.